The Individual Mandate

ObamaCare imposes a new requirement on all U.S. citizens and legal residents to obtain government-approved health insurance. For most Americans this will mean they are required to either pay a portion of their income to private health insurance companies, or pay a fine to the federal government for not doing so.

Beginning in 2014, the federal government will impose new fines on citizens and legal residents who do not obtain government-approved insurance. Those without insurance will pay a tax that is the greater of a flat fee, or a percentage of family income. The flat fee will be phased in over several years. In 2014, the penalty will be $95 per adult in an uninsured household, increasing to $325 in 2015, then to $695 in 2016, after which it will increase annually in line with consumer inflation. For uninsured children, the fine will be half the amount applied to uninsured adults. If greater, households pay 1 percent of their income in 2014, 2 percent in 2015, and 2.5 percent in 2016 and thereafter in lieu of the flat per person fee.

Limited “Hardship” Exemption

The hardship exemption to the mandate is extremely limited. To be exempt from the insurance requirement, someone would have to be facing insurance premiums at least equal to 8 percent of his or her income.

Federal Definition of Insurance

The federal government will be issuing rules on what qualifies as insurance for purposes of satisfying the individual mandate. See the primer section “Federal Regulation of Health Insurance.”

Regressive Incidence

The individual mandate falls more heavily on low and moderate income families. They will be required to enroll in health insurance plans that generally are more expensive than many of today’s offerings, and if they don’t do so pay a fine or a tax that they do not pay today. These added costs will mean these households have less discretion to spend their limited resources on other priorities, such as perhaps education or housing.